Scientology Ideal Orgs as Destroyers of Wealth, Part 1: The Strategy

In this series, we will finally collect what we have learned about the Ideal Org program and the strategy behind it in one place. Here, we’ll take our best guess about why Scientology is so focused on building lots of expensive new churches that nobody visits. There is a strategy behind it, and there are rational reasons why Scientology leader David Miscavige thinks this is a good use of cash, but the logic behind the strategy may surprise you.

Part 1 looks at what Hubbard thought made a Scientology org ideal, and we’ll look at why Miscavige took the idea and turned it into something very different. There’s an underlying strategy as well as the usual cult needs to exploit both staff and members.

Historical Background

Mike Rinder published a great early history of the Ideal Org program back in 2014. In it, he argues that the 2003 opening of the Buffalo, Johannesburg and Tampa Ideal Orgs were to solve specific problems in those cities. Buffalo’s lonely org was about to be condemned for an urban renewal project. Johannesburg had to move due to the murder of a staff member outside the building in a robbery attempt. And Tampa was an embarrassment, given the plans for the massive new “Flag” building.

Miscavige conceived the plan of upgrading the buildings to glorious new facilities, completely upending Hubbard’s policy. Of course, questions about his lack of fidelity to Hubbard’s holy writ didn’t arise among current members because anyone questioning his orders would either be sent to the RPF if in the Sea Org, or would be severely (and expensively) “sec checked” if they were members.

Importantly, according to Rinder, the genesis of the Ideal Orgs was not about fundraising; it was about solving specific problems in these three ailing locations. Int Management provided the money for Buffalo and Johannesburg. Only in Tampa was fundraising involved. There, Miscavige decided to push responsibility to solving the problem of an ineptly run org in the shadow of headquarters onto the membership, since staff appeared to be perennially unable to demonstrate minimal competence at bringing in enough money to keep the doors open.

The proof point for the model that Miscavige would ultimately follow with the Ideal Org strategy was the Flag building, which took 15 agonizingly slow years from the initial fundraising through opening of the mammoth edifice in Clearwater. But the Flag building is likely the exception that proves the rule that spending money on Ideal Org’s is wasteful and strategically inept.

Hubbard’s Thoughts on Ideal Orgs

Hubbard was against the accumulation of ostentatious real estate for the orgs, as evidenced in the following quotes. While Hubbard did spend up for his own comfort, such as buying the Maharajah of Jaipur’s estate at Saint Hill in the UK, he was relatively inconsistent in the quality of the real estate he accumulated for his own use.

“We own a tremendous amount of property. We own a tremendous amount of material, and so forth. And it keeps growing. But that’s not important.

When buildings get important to us, for God’s sake, some of you born revolutionists, will you please blow up central headquarters. If someone had put some H.E. [high explosives] under the Vatican long ago, Catholicism might still be going.

Don’t get interested in real estate. Don’t get interested in the masses of buildings, because that’s not important.”

Tape: The Genus of Scientology, Anatomy of the Human Mind Congress, 31 December 1960

And:

Viability of economics must not exceed the income of the org. The SAFE figure for rent and mortgage payments must not exceed 15 percent to 17 percent of the gross income of the org.

…C. Image is a secondary consideration. Example: Hotel Reycar Alicante Spain was relatively cheap. It was quite posh. Students complained as it cost a bit more than they were willing to pay. Image in this case worked against the org.

Example: Johannesburg’s three old buildings foolishly sold and the money squandered has yet to attain the income it made in its “old, horrible quarters” despite its newer image.

… An org which adventures more than 15 percent of its current gross income for rent or purchase payments can get into far more serious trouble than an org with a poor building image.”

There really doesn’t appear to be much wiggle room in divining Hubbard’s wishes from these two quotes. The first one actually appears twice in the “Green Volumes,” to emphasize its importance.

It’s important to avoid getting sidetracked into the “heresy” argument. Yes, long-time members will denounce Miscavige for failing to follow Hubbard’s policies to the letter, but we submit that this is ultimately irrelevant. Miscavige is facing a strategic landscape that Hubbard did not face, and he is not constrained in one way that profoundly colored Hubbard’s management decisions: Miscavige does not feel the need to keep costs low (other than slave labor wages paid to staff) because he is not focused on taking as much cash out of the business as he possibly can like Hubbard was.

The Best-Ever Ideal Org: The Flag Building in Clearwater

Miscavige hatched the plan to build the Flag building as the centerpiece of the cult’s extensive real estate holdings in Clearwater back in 1998. Many critics have estimated that the cult raised a minimum of $200 million from members for the building, based on the minimum donations required for the people listed in various church publications to have been awarded the status levels they received for their contributions. Actual donations could have been much higher due to incompleteness of lists of published donors, donations from people who subsequently left the cult, and donations in excess of the minimum level for a given status award but below the level of the next one.

We estimate that the nearly 400,000 square-foot building cost closer to $125 million to build, based on a review we did several years ago of construction costs for midrise office buildings. Thus, it is entirely possible that the Church of Scientology pocketed between $100 million and $200 million above its actual costs for this project. The Flag building thus was the single most profitable event-driven fundraising campaign in Scientology’s history, providing a significant incremental boost to revenue beyond the immensely profitable IAS slush fund donation stream.

Part of the reason that the Flag building was such a great fundraising campaign was that it would be the single most important building in the world for all Scientologists. It was thus relatively easy to convince everyone inside Scientology to dig extra deep on one occasion to fund the completion of this centerpiece project.

But of course, once the building is built, that’s the end of the fundraising… which is likely why the Flag building sat empty for five years after its 2008 completion, before pressure from members as well as mockery from outside finally forced Miscavige’s hand and drove him to move from fundraising mode to operational mode.

Miscavige’s Dismal Inheritance: Having to Play Progressively Weaker Hands

Miscavige is progressively more constrained in what he can do versus Hubbard, because Hubbard had the freedom to develop new material. But because there is precious little in the way of undiscovered product that can be extracted from Hubbard’s unpublished papers, Miscavige has few avenues to grow revenue from services. After Scientology reached its peak and started contracting in the late 1980s or early 1990s, straight donations from existing members became essential to greasing the wheels of this dangerous organization.

And yet, with an aging core membership base and few new members coming in, it becomes progressively more difficult over time to raise money from the membership solely due to “donor fatigue.” Aging Boomers who have been in the cult for 30 years have already had their financial carcass mostly picked clean; they are probably already mortgaged to the hilt in the process of making past donations.

Rather than casting about to look for the next globally important facility to top the Flag building, the obvious next move was to start fundraising for new local organizations. In aggregate, replacing the 60 – 70 Scientology org’s around the world, using a similar model to the overcharging for the Flag building, it likely seemed reasonable to believe that the Ideal Org campaign could ultimately yield greater total profits than that for the Flag building.

While this opportunity may have been real, the Ideal Org strategy had far more risks and far more moving parts, creating significant execution risks as well as financial risks.

So why would David Miscavige adopt a strategy that is far more risky and less certain to deliver financial returns than the Flag building project? Quite simply, because the strategic goals that Miscavige was trying to accomplish by upscaling the property are fundamentally defensive in nature, and mandated that Miscavige take on significant execution risk in building out dozens of new locations.

The Oily Sheen of Success

First, Scientology, more so than other cult groups, must present the image of growth and success to its members in order to “prove” that the “tech” works. While Scientology hits almost every sort of avenue to attract members, we believe that the principal feature pulling people into Scientology is its “tech” for giving members superpowers, allowing them to make staggering amounts of money with little effort and to exert power over others in everything they do. Cults who are focused on personal power must appear to be successful and thriving themselves, in order to validate the “product” that they sell.

We believe that David Miscavige’s legitimacy as the head of Scientology rests on the perception that is growing explosively. We think that any weakness in growth, once broadly realized across the organization, will be debilitating to morale.

Because both marketing and the leader’s career hang in the balance, we believe that Scientology has plenty of incentive to do whatever it can to prop up the increasingly hollow claims of dramatic growth. We think that the Ideal Org strategy morphed into an answer to increasing concern about the lack of “dissemination” coming from many members. This was one of the key issues raised in Debbie Cook’s e-mail that reached the bulk of Scientology’s members directly on New Year’s Day 2012. We believe this continues to be an issue for members, and forms the main impetus for building the expensive Scientology Media Productions in Hollywood and launching the Scientology TV cable/internet channel earlier this year.

One other group where growth in membership is seen as direct proof of the group’s legitimacy is the Jehovah’s Witnesses church. The JW’s had been growing north of 10% per year almost every year for a half century, with growth only slowing in the last decade or so. We, along with many JW critics, believe that the growth rate was seen by church leadership and by members as “proof” that its extreme position was right. However, as growth continues to decline (it’s now 1%-2% globally and near zero in most heavily industrialized countries), we believe this is causing the JW “Governing Body,” the committee that runs the place, to become increasingly controlling and increasingly defensive in attempting to keep members in the fold and to increase fundraising from its membership. It’s also resulting in increasing difficulty in recruiting for the JW’s — in the US, it takes over 10,000 hours of “preaching” (going door-to-door or handing out leaflets in subway stations) to reap a single baptized convert. And 50% of children raised in the faith are rejecting it, even though the JW’s practice “disfellowshipping,” where family members shun even nonbelieving kin, in a strategy akin to Scientology’s “disconnection.”

Keeping the IRS at Bay

Another key motivator for morphing the Ideal Org strategy into a major global initiative was the need to keep the IRS at bay. In the wake of the 9/11 terrorist attacks, the US government drove unprecedented global initiatives to stop transnational terrorist financing, including negotiating treaties with bank secrecy havens such as the Cayman Islands to open up visibility into formerly secret accounts held by US citizens and US corporate entities. We believe that the US government knows (or can easily find out) exactly where the cult stashes its cash and how much is on file.

And if the government is able to see exactly how much money Scientology has, then that means it could easily detect excess accumulation of capital, a big no-no for exempt organizations. This has been a major problem for the Getty Museum in Los Angeles, whose endowment is currently around $10 billion. The need to spend at least 3% of that every year, as required by tax law, has meant that it can pay whatever it wants for artwork it desires, distorting the global art market significantly. It also drove the museum to spend over $1.3 billion on its landmark building in west Los Angeles in 1997.

In our view, the biggest risk to the 1993 tax exemption deal with the IRS is the possibility that the exemption could be revoked over excess accumulation of capital. We think that charges of personal inurement would be much harder to prove as the paper trail of spending that benefits Miscavige personally would be much harder to track down. Proving that Scientology is accumulating far too much money and not spending enough of it for “public benefit” is far simpler.

And, as many commenters have said, Miscavige’s legitimacy as the supremo of Scientology rests in large part on the IRS deal, which Scientologists feel legitimized their “religion.” Thus, staying clear of the IRS by spending enough money on facilities is essential.

What Could Possibly Go Wrong with the Ideal Org Strategy?

In its early days, as the Ideal Org strategy got a name reaped from a misreading of Hubbard’s quotes, it seemed like a sure-fire winner. It was a great fundraising opportunity, which could over time add as much to the cult’s bulging coffers as the Flag building project. And by bringing in the senior members and demanding that they be responsible for the lack of results in the orgs, Miscavige created a sense of obligation for fundraising — Scientology’s success was no longer about management’s or staff’s competence but any failures were now directly attributable to public. This has the important side benefit of adding guilt for the cult’s failures to the reasons that create a sunk-cost bias among members and keep them loyal.

But there are several problems with the Ideal Org strategy that have appeared over the last 15 years, which increasingly make it unattractive.

The numbers game only works in growth mode:Of course, the main weakness of the strategy is that this only works as long as the cult keeps expanding and as long as the shrinking number of members who remain are flush with disposable income that they can give to the church. That’s no longer the case. In the US, wealthy donors are aging and are likely tapped out after decades of fundraising. Scientology is growing in some countries (though not enough to offset the overall decline), but members in Russia, Taiwan and Latin America don’t for the most part have sufficient assets to offset the slowing of donation from large American donors.

The carrot only works for a short period of time:A key positive motivator for public to continue to give to the Ideal Org strategy is the promise that the yet-unreleased OT IX and OT X levels will only be released when the Ideal Org program is complete. We think this is the main hook that gets people to donate to orgs outside their immediate area, which is increasingly important in keeping this strategy working. But mobilizing members to donate to faltering Ideal Org fundraisers outside their area carries risk: eventually, members from areas which have been through the pain of digging deep enough to fund their local Ideal Org will get mad at people in areas that can’t get it done, and will thus be less likely to donate where they don’t have a stake. A Sherman Oaks chiropractor who was regged constantly to give $250,000 to fund the Valley Ideal Org is not going to look kindly on the screw-ups in Kansas City — after all, Scientology is growing everywhere except, possibly, where you are. The out-of-area donor will assume that Kansas City is thriving, and doesn’t see the reality that there are only a handful of people to fund the org there.

People will be madder if they find out that the strategy isn’t bringing in new customers: It’s relatively easy for Scientology to keep up the Potemkin Village at Flag as that’s a single location, and it can be kept full by cannibalizing business from local orgs by offering services that the local orgs formerly offered. In business, this phenomenon of having multiple units of a business compete to sell the same customers is called “channel conflict” and it’s a recipe for disaster. But strategically, keeping Flag full is far more important than keeping an individual org busy. And it’s easy to hide the lack of new members at Flag, since, by definition, the only people going there will be committed members. The lack of new membership won’t be noticed.

Unfortunately, back at the Ideal Orgs, the lack of new members is obvious to anyone stopping in for services. The standard cover story, where Miscavige and the staff tell members in a given org that Scientology is booming everywhere else, will eventually stop working when people stop in to see the fancy new Ideal Org in Perth and discover that there are about as many staff as at the local Christian Science Reading Room and there are no public of any kind, much less “fresh meat” to be found. So, ironically, the lush quality of the Ideal Org buildings ends up being a potential seed in the destruction of the strategy as it alienates members who realize that all the money collected for these buildings has been wasted.

And new customer recruitment only works when Scientology sells a product new customers actually want:In 2003, when the forerunner of the Ideal Org strategy was implemented, Scientology was a lot less in the limelight than it was today. While there was a lot of critical information available on the Internet, people didn’t have smartphones that could instantly search for information when someone was approached by a recruiter. In other words, there was some hope that the usual deceptive recruiting approach would work.

Today, nobody wants the product. Too many people have heard the negative press, and too many of those who haven’t now can easily find out the truth about Scientology. In the early days, someone could conceivably drive by a Scientology building and say “Gee, that’s a successful church… I think that’s the one Tom Cruise and John Travolta belong to… I have a few minutes before my next appointment down the block, so maybe I’ll go see what’s up.” Now, Scientology’s brand is more toxic than an armload of ebola-coated kiddie porn, so exactly zero people are going to be motivated to drop in.

Conclusion

The Ideal Org strategy is doomed to failure as a way to recruit new members and, increasingly, as a way to get more money from existing members. In our view, there’s nothing that can be done to change this.

In future episodes, we’ll look at the economics of the typical Ideal Org fundraising campaign to see how Scientology might fare as a real estate investment scheme with a religious component. And then we’ll look at some case studies with individual Ideal Orgs, to understand what decisions made there will say about the organization as a whole.

Author: John P.

John P. is a Wall Street money manager and IT technologist fascinated by irrationality in all its forms, and Scientology most of all. He's a lifelong Steely Dan fan.
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